Hello friends. Friends, historically we all know that the rupee keeps depreciating continuously. Especially since 1991 when we freed our economy and left it to the market, the rupee has been continuously depreciating year after year. But I still had no idea that it would reach close to 100. I mean, I also thought that yes, it would take some time, it could take 5 to 7 years or 10 years. But the way it has fallen now, and there are many reasons for this which we will discuss in the video. Now the discussion here is precisely whether it will touch 100 now? Will it cross it? And see, psychologically this is a very important mark, hitting a century, crossing 100—because of this, more panic can be created in the market.
That is why you will see that global funds have already given a warning regarding the free fall of the rupee. So we will discuss this in detail today in the video as to what exactly is the reason for its fall and what will be its impact from an overall perspective on the economy, I will tell you all of that in detail. Let’s move forward. But before that, let me inform all of you, those among you who are preparing for UPSC, you can join us. Whether it is the 2027 batch or 2028, every batch is available within which complete preparation from Prelims to Interview is provided. You get one-to-one mentorship. A complete set of 18 books is sent to your home. If you have any doubt or problem, this phone number is given, so call on this and use this code Ankit Live for maximum discount. Let’s begin. First of all, let’s see what 100 per dollar means? It’s a simple thing that there was a time when it used to be 50 dollars, then 80 dollars, and then after that, it crossed 90 dollars and now it can be 100. This means the purchasing power of the rupee is falling continuously. Meaning, earlier when you had 50 rupees, you could get 1 dollar in exchange for it. But now you must have almost 96-97 rupees to get 1 dollar. This means its purchasing power has fallen continuously here, and India needs more rupees to buy the same amount of dollar. Now the first question arises, why is the dollar strengthening?
I will tell you the reason for the rupee ahead. But why is the dollar strengthening? Understand this. See, in the current global situation, investors are basically running toward safety whenever instability comes into the world. Right now you are seeing that war is going on. Look at how oil prices have risen. Uncertainty is growing continuously. So what do investors usually do? They put their money in a safe place. US dollars, US treasury bonds, American financial assets. Because investors around the world have faith in America that brother, their economy is strong, it will not go bad, it will not fall. Meaning, suppose if you are putting money somewhere, you expect that your money shouldn’t sink, you should get that return. So if investors across the world are given two choices, that you are getting the same return in India and you are getting the same return in America, then obviously they will trust the American economy more. So here you also have to understand why the demand for the dollar increases? Because whatever forex reserve you see, like RBI’s forex reserve as well, the forex reserve we have is more than 600 billion dollars, so within that, we keep the maximum in dollars, right? 58 to 60% of your forex reserve is in terms of dollars. Most of the oil trade is done in dollars. If you look at the global debt market, that is also dollar-centric. Meaning, during a crisis, everybody wants dollars, everyone needs only dollars. But see, the point is that the dollar is strengthening, that’s fine. So this should apply to everyone—for China as well, for Russia as well, for Iran as well, for African countries as well. It should apply to everyone. Alright, that’s true. So the question is, why is India so vulnerable? Why has our currency depreciated so much? And if you see here, it is being stated that India’s currency has become the most undervalued in 12 years. So the problem is that we are heavily dependent on imports. Especially energy. We import crude oil, we import LNG, electronics, semiconductors, defense equipment, gold, fertilizers, everything. And mostly, we pay for this in dollars. And because of this, the demand for the dollar remains very high. Now, the biggest factor in this is crude oil. Meaning, 85% of our crude oil need—in fact, it has become 90% as of today—we import it. And that is why if you see, PM Modi also recently told the entire nation that look, try as much as possible to consume less petrol and diesel, do not purchase gold. So the reason for that is the same, that we pay for all these things in dollars. How does oil impact? For instance, suppose if India imports 5 million barrels per day of oil, then earlier, if say the price of oil used to be 75 dollars, now you all know what has happened, it is running above 100 dollars. When it will come down, what will happen, nobody knows. When it goes to 110, goes to 115, then it will come to 100, then it will increase because that Trump and Iran thing keeps going on. Now you won’t be able to do much about that. So the point here is that for the thing you used to get for 75 dollars, now you have to pay 110 dollars for it. Meaning, India will have to pay more, right? Meaning, to buy that same oil, to buy that same quantity of oil, more of our dollars are being spent. What does spending more dollars mean? The demand for the dollar is increasing. Here we have to sell the rupee, convert it into dollars, and because of this, the rupee depreciates. Then second, understand another thing here—the petrodollar mechanism. India tried a lot with Russia, with Saudi Arabia, UAE to do some trade in local currencies, in each other’s currencies. No matter how much you do, at the end of the day, the entire crude oil market works on the petrodollar mechanism. Petrodollar simply means that if any oil is sold or bought, it will be in terms of the dollar and not in any other currency, and this has been going on since the 1970s because America has built that pressure. So because of this, whenever an oil shock comes, you will also see a dollar demand shock. Now what is the cause of this? What is its impact? Understand—Current Account Deficit. Current Account Deficit, I am sure you have read in economics. Its simple meaning is imports minus exports. Meaning, what we are importing and what we are exporting. Suppose if we are importing goods worth 1000 rupees and we are exporting 1500 rupees, then alright, the matter is fine here. We are making a profit of 500 rupees, it’s being saved. Meaning, more is coming into India. But take the opposite scenario. If we are importing for 1500 rupees and we are exporting only 1000 rupees here, right? So 500 rupees now… the problem with India is that we import more, we cannot export that many goods. Here you can see, the current account deficit matters for this reason because a gap arises here. Now how will you fill that gap? So what India does is it remains dependent on foreign investors, on FDI, on remittances, on external loans—on all of these. But imagine if this is also slow, then what will you do? And this has become the most dangerous situation right now for the economy. What is the dangerous situation? On one hand, oil imports are increasing. On one hand, our imports in other things are keeping on increasing. So because of this, the demand for the dollar is higher. And on the other hand, the dollars we used to get earlier, instead of getting them, it is conversely running away from India. Meaning, the foreign investors who used to bring dollars into India, which gave us relief… because here, what can we do, we have to import oil anyway, we will have a current account deficit. So because of this, foreign investors used to bring money here. But what is happening now? They are taking back the money they had invested in India. So this is a very dangerous imbalance. I hope you are able to understand this. Now a question will come to your mind as to why these foreign investors are taking away money? See, again the same thing happened, that whenever FIIs sell stocks… now you all know the condition of the stock market as well for some time past, what has happened. So whenever they… because earlier they put money in the stock market. Now they are feeling scared that brother, India’s stock market will not give that much return, that much profit won’t come, there can be a loss. So they are selling their stocks here. So when they sell their stocks, what do they get from it? They sold in India, so they got rupees in India. Now that investor is from America. He won’t take rupees away. First, he will convert the rupees into dollars in India, and then he will take the dollars. So because of this, a lot of selling of the rupee is happening and the buying pressure on the dollar is increasing significantly, and this is not just about India. Whichever strong economies you see, whenever this kind of situation happens, capital exit is seen here. Okay, here again you can see, FIIs are also leaving because the US interest rate is quite high. US interest rate means that now what has happened is that earlier the US interest was running quite low.
So now suppose, the example I was giving you in the beginning, that on one hand is India, suppose in India you are getting 6% return and in America you are getting 4%. So there is no very big difference, suppose there is a difference of 2%. So the investor will feel that brother, okay I am getting only 4% in America but at least I will remain safe there, why should I take a risk regarding India? So this is the thing. Capital starts leaving from India, Brazil, Indonesia, South Africa because they are getting an opportunity in countries like America, and especially war and geopolitical uncertainty are going on anyway. Because of the US-Iran conflict, fear has increased significantly here. Investors do not want to put money in riskier markets. They do not want to go to countries like India, Brazil. Emerging markets suffer because of this, currencies become weak, the stock market falls. And understand one more thing—profit booking. I told you, right, that until now investors had put their money inside India. Now they are feeling that brother, the return won’t be that much here, so they are selling shares and trying to run away from here. Okay, now the question is, why this talk about 100 specifically? Because suppose right now the dollar, you see a year or two ago it was running at 80, was running at 85, then it crossed 90. There was a lot of discussion at 90 as well. But right now it hasn’t even reached 100, but still why is there so much discussion? See, psychologically this matters a lot. You look at any thing—whether we talk about Bitcoin, talk about Sensex, everyone has their own milestones. 10,000 dollars, 1 lakh—when will the Sensex cross it, will it cross or not. Gold 3000 dollars, rupee… and that is why here 100, what happens is an emotional reaction comes from it, panic comes, speculative movement happens. Meaning, the traders will come into panic. As soon as they… meaning they will catch a fever regarding 100, that kind of situation happens. So here, so that they don’t face a loss, what should be done? Importers immediately start moving toward dollars and this panic is created, and because of this, suppose if 100 is touched, it might happen that it falls immediately and comes close to 105 because in a panic situation, you will start selling even more and start buying the dollar, and let me tell you that already in the future market, in the forward market, 1 dollar = 100 rupees has already been crossed. Yes, what is the forward market? Basically, like suppose there is a spot market. Spot market means what price is running right now, the dealing happens according to that—that right now 1 dollar = 96 or 97 is running, so your dealing will happen there. Now what happens in the forward market? You decide in the future. You bet in a way that here in the future, after 2 months, after 3 months, after a year, I will sell or buy dollars from you at this particular price. So you made a deal beforehand that yes, I will give you 100 rupees for 1 dollar. Meaning, in the forward market, if you see, in India’s one-year forward rupee contract, it has already crossed this 100 rupees and that is why now it is being watched as to when it will touch, because see,
it is not that if it touched in the forward market then this has to happen definitely, but yes, the chances increase significantly. Now the question is, what can the RBI do? See, the RBI is saying that we are trying to defend the rupee. What are the things involved in that? Like the RBI will start selling dollars from its forex reserve. Right now, our reserve is around 600 billion dollars. It will start buying the rupee. So what happens from this is that the supply of the dollar will increase. Now the supply of any item will increase, like suppose apple, orange supply increases—meaning its prices will fall. So according to that, the RBI also tries to increase the supply of the dollar in the market. Make a little shortage of the rupee, buy the rupee. So because of this, the depreciation that is happening will slow down a bit. But is it possible for the RBI to do it? See, the RBI cannot do very much because if the fundamentals are quite weak,
if the rupee is going toward 100, no matter how much the RBI tries… oh brother, if the RBI has a reserve of 600 billion dollars lying around, a forex reserve, it won’t spend all of that just in defending the rupee, right? Now if it has to go, it will go, you won’t be able to do much ultimately. You understand that in 1991 also we took a big lesson. In 1991, the same thing happened—an oil shock occurred due to the Gulf War, imports were high, reserves were low, fiscal stress occurred. We had to mortgage our gold, had to send it abroad. So all these memories are still quite fresh among India’s planners, in economists. And that is why, although you cannot say that the current situation is like that because we have a good amount of reserve. That is why that reserve has to be protected, as much as we can. We must not just spend it all. And right here, because of this, a big dilemma comes for the RBI—a policy dilemma. Meaning, you understand what will happen—inflation will increase, import inflation it is called, that the prices of crude oil rose, the expense of transport will increase, food transport will increase, factory input cost will rise, consumers will have to pay more. So the entire economy gets impacted. So the RBI will have to manage.
Now what can the RBI do? Either it can increase the interest rate or it can keep the interest rate low. Now if it increases the interest rate, it will control inflation. But again what will happen here is that goods will become expensive, inflation will become a bit expensive, growth will reduce. So our economy will suffer. If here it lowers the repo rate, the interest rate, then from this our growth will be good, investment will be higher, but again the rupee can become even weaker, inflation can become even worse. And that is why it is called the central bank’s policy dilemma which the RBI had to face. Now let’s see what decision is taken in the next Monetary Policy Committee. But yes, understand one thing here, when the rupee becomes weak, another thing comes to the minds of many people that from this, some people will also benefit. Like IT companies, India’s IT firms earn in dollars—Infosys, TCS, Wipro, and the dollar will strengthen here, meaning they will have more earnings. In a way, exporters who sell goods from India, like textiles, pharmaceuticals. Remittances that come—the people who are working in Dubai, in America, so from there they are sending in dollars. So the Indian families get a lot of money. But understand one thing. Right now what is the problem?
In a normal case, okay, if the rupee became weak then here they would benefit. But right now what is the problem, globally the demand itself is already running slow. Now you take the IT companies—because of AI, their condition is already bad anyway. So their situation is already bad, no very big benefit is going to come from this. So this problem comes up. So the question is, how will the rupee stabilize then? See, ultimately the oil price will have to correct a bit. The oil price will have to stabilize again, only then things can be fine. As long as the oil price remains high above 100 dollars, the problem will keep running. Then a ceasefire should happen in the geopolitical tension that is going on, the Iran war, so that investors also have a bit of trust that okay, now it has become fine, because if things become fine here, the prices of oil will cool down on their own, then the RBI will be able to intervene even better. If US rate cuts happen, then maybe perhaps some more benefit can be there,
if the interest rate reduces in America. Exporters and remittances should be higher, foreign investors should come back inside India. And look at the historical perspective, the dollar and rupee—meaning the rupee has always depreciated. In 1947, it was around 3 rupees. In 1991, because until now a fixed exchange rate used to run earlier, we did not use to reduce it. But in 1991, we went to a flexible exchange rate here. That is why 17, 45, 68, 75, 83, and in 2026 right now 96-97, let’s see when it will touch 100, what is going to happen. But I hope that in this video you got a lot of clarity, understood things, this was my purpose here. Before leaving, a very interesting question. See, we are talking about currency. India’s currency, the rupee—so for the first time in India, if you see, this name was used for a silver coin
. This term, right, ‘rupee’ that we say—so by which ruler was this term used for the first time, you have to tell. And its right answer, as you all know, will be available on my Instagram. If you are not there, no problem, you can get the correct answer from Telegram. And friends, as I told you, if you are preparing for UPSC, whichever batch you want, whether it is 2027, 2028, in every batch complete preparation for Prelims, Mains, Interview is provided to you. We will send the complete set of 18 books to your home, one-to-one mentorship. And if you have any other doubt, problem, want any information related to the batch, this is the phone number, call on this: 09240023293, and use the code Ankit Live for maximum discount. Study IQ IAS, your selection, our mission.
